Russia gives BP the black gold go-ahead

Oil group BP yesterday put its merger with TNK firmly on track for completion next month after it won approval from the Russian competition authorities for the ground-breaking $6.15bn (£3.9bn) deal.

Britain's largest company is to enter the former communist country at a turbulent time, one which had not been envisaged when the TNK move was announced six months ago.

BP said it was confident of receiving the final green light from anti-trust bodies in five smaller markets including Hungary and Poland while tying up the final paperwork with TNK.

A public briefing on BP's wider plans in Russia has been pencilled in for October 16 but the oil group has already been making changes that have boosted output from TNK's west Siberian heartland.

Ilya Yuzhanov, head of Russia's competition authorities, confirmed in a formal statement he had waved through the merger which will create the country's third largest oil producer - with 1.2m barrels of crude a day - behind Yukos and Lukoil.

BP has agreed to buy a 50% stake in TNK from shareholders in Alfa Bank including Mikhail Fridman, and Viktor Vekselberg and other shareholders in the industrial group Access/Renova. The tie-up has raised eyebrows because BP chief executive Lord Browne had a high profile row with these Russians over the alleged removal of assets from a Russian company in which the British group has a holding.

There are also ongoing cases in foreign courts - including one in New York where third parties have accused Alfa and Access of money-laundering.

The BP boss has nailed his "ethical credential" colours clearly to the BP mast while entering an emerging market still bedevilled by corruption and gangsterism.

The immediate difficulty facing the British company is the vicious power struggle between Russia's president, Vladimir Putin, and the so-called "oligarchs" who control the vast bulk of the country's businesses.

So far Mr Fridman and Mr Vekselberg have not been affected but armed police have raided the Moscow offices of Yukos and its chief executive, Mikhail Khodorkovsky, has been interviewed by law enforcement officers.

Yukos associate Platon Lebedev has been charged with theft in connection with a 1994 business deal.

Andrei Illarionov, a presidential economic adviser, warned that the rift between big business and the Putin administration could end in "civil war".

Analysts believe the crackdown on the oligarchs is a thinly veiled warning that they should not use their financial strength to mount political opposition to Mr Putin's rule.

There are parliamentary elections in December that could undermine Mr Putin's influence in the duma, and there will be a presidential poll in March.

The arrests unnerved foreign investors, causing a near 15% slump in an otherwise buoyant Moscow stock market. The RTS index has since recovered but the events have reminded shareholders of the risks of putting their money into Russia.

Stephen O'Sullivan, head of research at Moscow stockbroking firm United Financial Group, accepts that confidence was given a knock but remains optimistic about prospects.

"It reminded people to factor in political risk but I have just got back from a trip to America and emerging market investors there remain upbeat about Russia," he argues.

Mr O'Sullivan, whose firm is an adviser to BP and has been on the receiving end of speculation that it could be bought into by Deutsche Bank, points to the investment in the local oil sector by Russian as well as foreign firms as proof of a positive mood.

There has been the $275m purchase of a 45% stake in KMOC by Marathon Oil of the US, Rosneft of Russia bought London-listed Anglo Siberian for $71m and Lukoil bought Urals Energy for $130m. Shell and ExxonMobil have also been pumping cash into various Russian oil and gas schemes such as those on Sakhalin Island.

By finalising the effective takeover of TNK, Lord Browne will make the biggest single investment by a foreign firm in Russia. BP has lost money there before, but the stakes are much higher this time.